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What does it mean to be living common-law in Ontario?

THUNDER BAY, ON - October 19, 2009 - Are you living in a common-law relationship? Do you know what that means from a tax and legal perspective? Many people involved in these types of relationships do not understand what their rights may or may not be. The following is a brief synopsis of some of the more important personal planning issues you should consider. However, it is always important in these situations to confer with a lawyer in your jurisdiction to ensure that you receive advice that is relevant to your personal situation.

All references in this article to common-law couples will include both opposite-sex and same-sex couples.

Tax Planning
If you meet the definition of “common-law partner” under the federal Income Tax Act, you will effectively be taxed in the same manner as a married spouse. The definition of “common-law partner” means a person who cohabits with another person in a conjugal relationship, for either:

• A period of 12 months; or
• A shorter period of time, but while raising a child together. (Simply having a child together is not sufficient to be considered to be living common-law – you must also be living in a conjugal relationship. Also, the child either has to be the natural or adopted child of both partners, or if one partner is not a parent, then the non-parent must be providing support to the child).

If you meet either of the above two tests, you must indicate that you are living common-law on your tax return. If you have filed a fraudulent tax return, you may be denied CPP or other pension survivor benefits, or alternatively, you may be reassessed for unpaid taxes, interest and penalties.

There are a number of advantages and disadvantages to being considered a couple under the Income Tax Act, depending upon your situation. Some of the advantages include the ability to allocate certain types of pension income to a lower income-earning spouse, and the ability to transfer certain types of personal tax credits in order to ensure that none of them go unused. However, some of the disadvantages include the loss of the eligible dependant credit, which one or both partners may be claiming if they are raising a child, as well as the potential loss of some social assistance benefits, as the income for both partners must be pooled for the purposes of determining eligibility for certain amounts, including the Guaranteed Income Supplement and the Allowance (offered under the Old Age Security program), the GST credit and the Canada Child Tax Credit. If both partners are earning an income, the ability to receive these amounts or claim these credits will decrease more quickly.

Family Law Issues
Many common-law couples assume that since they are treated the same as married couples under the Income Tax Act, they will be treated the same as married couples for all purposes. However, that is not the case. The ability to make certain family law claims against a former common-law partner is determined by provincial legislation, not the federal Income Tax Act.

Family Property – In Ontario, only married spouses are entitled to a division of family property under the family property legislation. Common-law couples are only required to divide their property in the same manner as a married couple if they have signed a cohabitation agreement providing for that. If you and your common-law partner have not signed any sort of domestic contract regarding the division of family property, you will not have any right to apply for a division of property under the provincial family law legislation.

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